Analysis of Financial Statements for Amazon-.docx - Running...

Running Head: ANALYSIS OF FINANCIAL STATEMENTS 1
Analysis of Financial Statements for Amazon
Tamara N Robinson
Southern New Hampshire University

ANALYSIS OF FINANCIAL STATEMENTS 2
Abstract
Amazon is a Fortune 500 e-commerce company based in Seattle, Washington. It has the
distinction of being one of the first large companies to sell goods over the Internet. In 1994, Jeff
Bezos founded Amazon, which launched the following year. This paper will conduct a financial
analysis of Amazon’s financial statements from 2013-2016. Financial analysis is used to
establish the investment value of a business, stock or other asset. Income, balance, and cash flow
statements are typically used to extract ratios that divulge information such as solvency, price to
earnings and return on equity. Their function is to paint a current picture of the asset that can then
be compared to similar businesses or predict future performance based on past performance. The
financial analysis will review the changes in financial ratios, analyze the changes in the financial
reports regarding cash, analyze the changes in the financial reports regarding the account
balance, describe the type of valuation method, as well as predict how your company will
perform in the following year compared to competitors.
Keywords: financial statements, financial analysis, Amazon

ANALYSIS OF FINANCIAL STATEMENTS 3
Financial Ratio
The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-
term obligations. To gauge this ability, the current ratio considers the current total assets of a
company relative to that company's current total liabilities (“Current Ratio,” n.d.). The current
ratio for Amazon for 2013-2016 are 1.07, 1.12, 1.05, and 1.04, respectively. A ratio below 1
means that a company has more liabilities than assets which makes it more difficult to pay
obligations. Meanwhile a ratio above 1 means a company can pay its obligations due to the
company having more assets than liabilities.
The gross margin ratio is computed by dividing the company's gross profit dollars by its net sales
dollars. A company should be continuously monitoring its gross margin ratio to be certain it
will result in a gross profit that will be sufficient to cover its selling and administrative expenses
(Averkamp, n.d.). The quick ratio for Amazon for 2013-2016 is 75%, 82%, 75%, and 78%,
respectively. The gross margin represents the percent of total sales revenue that the company